Some folks (e.g., The Concord Coalition) are saying the 10-year deficit could be $14 trillion or more. If the deficit is anything even close to $10 trillion over the next decade, this puts us in largely uncharted waters, since it would represent the biggest deficit, in both nominal terms and relative to GDP since World War II. Deficits could range from 6-10% of GDP annually, far out of the range of anything we’ve seen in the post-war period.
So I began asking myself some tough questions, especially since I’ve been saying that the economy can grow 3-4% a year in spite of the ugly fiscal policy environment staring us in the face. Just how easily are these deficits going to be financed? Could they effectively absorb all or most of the savings of the private sector, leaving the economy with little or no private-sector investment? Could this be the real “crowding-out” of private borrowers that became a fashionable concern during the Reagan years but in the end proved overblown? How can the economy grow if the government—a chronically inefficient spender and investor—is commandeering nearly all the economy’s savings? Annual deficits on the order of 10% of the GDP are reminiscent of Japan in recent decades, and haven’t they led to a moribund economy and a crippled stock market?
[…]
But these trillion-dollar deficits for as far as the eye can see are being driven primarily by a big increase in government spending. So that leaves us with the worst of all worlds, doesn’t it? How can one be optimistic in the face of this impending disaster?
Here it is in graph form.
“Transfer payments are awful things, of course, since they can and do create perverse incentives. Taking money from Peter who makes a lot and giving it to Paul who either doesn’t earn much or doesn’t work much is likely to result in Peter working less, while giving Paul an incentive to work less.” ///
Perverse: no increase minimum wage for how long?
Perverse: post data stock options?
Perverse: CEO compensation completely disproportionate to any other economy set by a self dealing cabal of ceo occupied boards?
Perverse: CEO’s and stockholders looking only at the short term.
“giving it to Paul who either doesn’t earn much or doesn’t work much” /// doesN’t work much==yea, thats the problem with the bottom99% of workers only getting 75% of the pie. Nothing PERVERSE THERE!!!!!!!
“while giving Paul an incentive to work less.” /// Criminals should always be incentivized to steal less. Too bad they don’t have to spend more of their time figuring out how to escape being put up against the wall. But thats American–one big theftocracy from Big Business to Revolving Big Government.
All aboard the inflation train.
Sorry but we are going to have to pony up more…the commercial real estate shoe is dangling on the left foot.
We need a bailout!
Paul Krugman when Bush was President:
… the conclusion is inescapable. Without the Bush tax cuts, it would have been difficult to cope with the fiscal implications of an aging population. With those tax cuts, the task is simply impossible. The accident, the fiscal train wreck, is already under way.
Paul Krugman now:
… the lesson of the 1950s — or, if you like, the lesson of Belgium and Italy, which brought their debt-GDP ratios down from early 90s levels — is that you need to stabilize debt, not pay it off; economic growth will do the rest….
So, to review: to make the debt look scary, you have to dismiss the post-World -War II experience, even though it turns out that the 50s offer a quite good lesson…
[] Krugman 2003 [deficit at 3% of GDP, 10-year deficit projection $1.8 trillion]: “I’m terrified … we’re looking at a fiscal crisis that will drive interest rates sky-high … the conclusion is inescapable … the task is simply impossible … the fiscal train wreck, is already under way.” Or,
[] Krugman 2009 [deficit at 11% of GDP, 10-year deficit projection $9 trillion]: What’s to worry? The Ozzie & Harriet era of government finance will be easy enough to bring back. Just stabilize the debt in terms of GDP and be happy!
http://tinyurl.com/krugpar
#3–green==yea, I came back to say that in less acceptable terms. So, when the most obvious reaction is not mentioned, why is that done? Who does that?? Must be cornering/already has the long play in commodities. Now just which quarter will maximize my return???
Politicians need to stop spending more than they take in.
We do what every other third world country does. We print money like crazy until we hyperinflate, then pay off our debts with worthless currency, beg for debt forgiveness in exchange for opening markets, then start over with a completely new currency.
What we eventually need is to convert to a steady state economy, with a perennial balanced budget. Right now deficits create inflation which is a stealth form of taxation that hurts the poor and middle class a lot harder than the upper classes.
A perrenial balanced budget would mean that when spending goes up, taxes automatically are raised to cover the spending. This would drive the pork barrel spend but dont raise taxes Republicans and Democrats nuts.
Spent a little time on the guy’s website searching “housing bubble” and “Credit defaults.” Its hard to tell without wasting all kinds of time, but it doesn’t look like any red flags were thrown until it was obvious.
Like most “experts” very adept at explaining what has already happened with an air of expertise.
Wall Street Expert = Bunco Artist. Same as it has always been.
Yet another reason why I feel that anyone spouting “green shoots” is effectively displaying “Clueless” bold-stamped on their forehead. Karl Denninger has claimed that, historically, any country that ends up paying 6% or more of GDP on national debt interest meets with some sort of truly catastrophic economic collapse. Even the unrealistically low debt figures provided by the fedgov will lead to that percentage for the US. Here’s a piece on the debt that’s good but doesn’t mention Denninger’s collapse (because it’s not written by Denninger).
On another Great Depression II topic, commercial real estate will be one of the major triggers of the next equities crash combined with the end of the fedgov $8,000 incentive for new mortgages (if they don’t extend it), the end of various foreclosure moratoriums and poor holiday sales figures. The long term holds many more foreclosures due to mortgage resets and unemployment and, possibly, higher interest rates that might be required to attract more suckers, I mean, buyers for treasury notes to finance continued massive US deficit spending. Those higher rates would do great damage the housing market and would greatly accelerate the economic spiral downward.
Have a nice day.
And another good one posted today from another “reality” source, Zero Hedge.
..well this is a no brainer..
they’ll do what they always do:
Raise the debt limit and pile on more debt!
of course it wont matter.. i suspect we’ll see another race to the bottom in the markets over the next two weeks.. i expect about a 1000 point drop in the Dow no later than the 20th.
you have to laugh at yesterday’s news out of washington that the “recession is over” because “Supply Management’s factory index showed that manufacturing crossed a critical [psychological] 50% level, reaching 52.9% in August”
-and yet the DJIA fell almost 2% yesterday on this wonderful news..
[i gather only the suckers who watch CNBC bought on that news]
if anyone want a serious clue that seems to have escaped the MSM and pro-washington market gurus is that the BDI [Baltic Dry Index] has been falling since June 3rd..which is what exactly happened last summer before the september crash. [its started to fall like a rock last june]
(the year prior [2007] it rose like mad from July straight through november)
Note: under a “normal” economy, the BDI rises during the summer as retailers stock up for the fall/winter holiday season.
also of note is that all the west coast ports are still down 20% on average from last year as well..
lastly, the TPTB [lately] likes to initiate psychological hell right after the 9/11 date to raise the fear factor a notch or two. -remember, the markets operate on emotion, not data.
so take some off hand advice, get the hell out of paper while you still can.. i’m went against the grain and bought some physical silver, as IMO, silver medicinal value will be realized this [swine] flu season.
oh, and of course FOOD stores.
does anyone think that they mandated having calories displayed on menus just for your health??
some have said that we will be moving to a “calorie” based economy soon..
well, IMO, the TPTB have planned this and that is why we have calories listed on Burger King menus and the like. [like people who eat that crap give a flying F about calories]
here is the 6 month BDI
-and the 3 year..,
even an amateur like can see the writing on the wall a mile away
-s
[and the fact that we still have no sun spots showing up means we will have a winter not seen in almost a decade..putting further pressure on the the crops]
One way to deal with this, is to find all the cheats, with their overseas shadow accounts, and tax the rich more.
Tax rates back to the time of Eisenhower, when the rich were paying more, and still made money.
The important thing is to ignore the problem and simply blame either the democrats or the republicans.
This is no surprise to me, but it’s a good recent article on the subject:
Democracy is dead … lobbyists rule America
a 16-point manifesto for the new ‘Lobbyist Nation of America’
Let’s cut to the chase on the contributions to this.
(1) Yes, increased government spending has contributed to the deficit. But this spending is the medicine to lift us out of economic meltdown. Hint: that’s why it’s called stimulu spending.
(2) The “BM” (Bush Meltdown) itself has resulted in less wealth, less value to tax against. No employment = no taxes. Lower value on equities = no taxes . No buyers = no taxes. See the trend?
What we need is a comprehend that we are in a recession, are fighting two elective wars and people are unemployed. Does that help explain why we have deficits and debt?
We all wish Bill Clinton is here to clean up the GP mess but now we have the magic negro to do it.
#17
1. Which hasn’t worked to date nor any other time in history
2. It is beyond Bush now. The policies and spending in place are Obama’s just as the article suggested.
No, we all wish we had Gingrich running Congress instead of Pelosi to clean up this mess. At the end of the day, Obama took a recession and turned it into a depression.
#18 Wrong. Opinions don’t count, facts do.
(1) The majority of economists agree that doing nothing is not an option. You have to induce stimulus spending which is why it was proposed and passed during the Cheney administration.
Government spending on wars and/or military spending increase was often used to pull out of a recession. Read your history. Government spending is a tried and true stimulus.
(2) Wrong. The day before Obama got elected we were heading into the abyss. Only an ignoramus would discount that putting an expert pilot into a plane on fire with no engines can pull out in short order.
(3) I’m not sure but I think Gingrich is prison or something. I forgot if he was banned for sexual misconduct, lying, cheating to what but he is still in the penalty box by his own party.
Finally, we are not in a depression. You are a liar or just stupid. Probably both. There are no indicators of a ‘recession’.
“I’ve been saying that the economy can grow 3-4% a year in spite of the ugly fiscal policy environment staring us in the face.”
This statement has a FLAW.
And needs to be DEFINED.
Growing an Economy DOES NOT MEAN everything goes UP IN PRICE. And it SHOULDNT go up in price.
To many companies tend to raise Everything 3-5% per year, EXCEPT wages.
But even if you do. 3-5% increase ISNT THE SAME when you are dealing with VERY high priced goods.
Lets look at something. Min wage in 1985 was $2.65(?) and in 20 years it only DOUBLED??(remember that its ONLY recently went higher). But the Price of goods/food/bills/and almost everything else has Tripled and more.
What has REALLY changed?
PEOPLE LISTENING TO ECONOMISTS has changed.
Corps listen, Because it gives them a REASON to raise prices, even if its not needed. Remember Corps pay for Nothing, It all comes out of YOUR pocket.
STOCK MARKET has changed. Corps want investors. And its STUPID. Major corps should have all THEIR MONEY and not worry about paying INTEREST on stocks. The stock market was created for Farmers and Ranchers, NOT Clothing stores, Electrical corps, and Cars makers. Companies have to show ACTIONS in a stock to make others want to BUY IT. PROFIT should have nothing to do with it. Only the VALUE of goods and services. Any corp worth investing in, ISNT in the stock market. They HAVE money and use it properly to IMPROVE their company. They dont need INVESTORS just to add a new Plant or facility.
My children and I are not bothered by this accounting whatsoever. Chapter 7 and foreclosure mean that we have paid already, right
Right?
please tell me I am correct!
gotta love this “recovery”
The deficit for the next 10 years can’t be $14 trillion — simply because no one would be willing to lend us $14 trillion.
For all the money going to the GOV..
Where did it all go?
we need an Army of book keepers AND an army of searchers to FIND out if the money was used properly…
And every year we have the gloom and doom people scream debt debt debt!
And yet since WWII no government has paid it all off.
So why didn’t we pony it up during the previous regimes?
Well? Ike said that we cannot lower taxes until we have a balanced budget. Well people? Did lower taxes help us?
Cursor_
lol, and I was just listening to this civil service guy complain that there was only a proposed 2% raise for the upcoming year.
#19
1. No one say you had to do “nothing” but they also did not say that we had to blow billions on the auto manufacturers or to give a metric ton of cash to banks to pay execs fat bonuses. The type of spending we are discussing is not at all like spending for a war. In a war, the government invests in manufacturing of tangible products on massive scale. That isn’t the type of spending Obama’s doing. Thus, my statement still stands.
2. Balony. We were headed into a recession. No one said we would pull out in short order.
3. Isn’t Pelosi giving penny blow jobs on the floor of the House? I hear that allegation is as valid as Gringich being in jail.
4. RE: Depression/Recession
Solely looking at raw GDP growth you are correct (barely). However, based on unemployment rates, which some economists have as high as 17%, we are definitely still in a recession.
Thomas,
I have an idea for Corps that send all the employment to other nations..
SHIP THE EXECS there also..
They dont need to be in this country.
Other nations CAR corps jumped to the USA for 2 reasons..LOWER taxes, and LESS SHIPPING..
I love the idea of USA corps SCREWING USA citizens..NOT.
Im not saying profit is BAD..But can we define a new Wording..GROSS PROFITS.
When you bring a product to this nation and Charge more then 2 times to sell it to RETAIL, and RETAIL charges 2 times MORE..
@7 “Politicians need to stop spending more than they take in.”
It’s simple. But you (the public) are too greedy and stupid. 80+% of the Federal budget is military (can’t be cut), social security (can’t be cut) and Medicaid (can’t be cut).
What are you going to do? The Republicans will NEVER decrease military spending. They’re even promising to defend Medicare from “Democrat cuts”. And I don’t think they’re about to slash social security.
So since the Republicans (and Democrats) won’t and haven’t historically cut those programs…what’s your solution?
Lets see…
Ronald Reagan ran up (then) unprecedented deficits…but it was needed to spend down the evil Soviet empire!
George W. Bush ran up new records of deficits and debt…but it was needed to fight “evil doers” around the world!
So now Obama is going to run up record deficits to “save the economy from a depression”.
Each of those folks have their “believers” who KNOW they were right to spend cash we didn’t have…because it was NEEDED to help us
Do you see the problem?
two words: Military Budget
what a f**king waste
The only way to pay the debts is to inflate the currency and make fixed smaller in real terms.
Of course we get $10/gal gas, but liberals want that anyway.
Zimbabwe points the way!